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The Economics of National Character C Culture, Institution, and Development in China: The Economics of National Character C. Simon Fan How does culture shape history--and history shape culture? This book aims to help answer this question by conducting a comprehensive and rigorous analysis of the evolution of the Chinese culture, political and legal institutions, and “national character” throughout historical and contemporary China. By repeatedly applying the “political Coase theorem” and utilizing other economic theories, it investigates how a “national character” evolves endogenously along with an institutional environment, which is in turn determined by economic, political, and geographical fundamentals. In a recent influential book, North, Wallis, and Weingast (2009) emphasize the importance of controlling violence to maintaining social order. They argue that successful societies can control violence at a relatively low cost, and that successful economic organizations can operate only in violence-free environments. This book extends North, Wallis, and Weingast (2009) in two ways. First, it incorporates the role of “personality” into analysis of violence and social order. In a society where people worship bravery and violence, violent actions are often committed frequently between different individuals and groups. However, the individuals in a society that treasures courtesy and kindness usually engage in little violent conflict. The “personality” described in this book refers to the “average personality” of a country’s people, rather than the personality of a particular individual.1 In the sociology and political science literature, the “average personality” of a country is often referred to as “national character” (e.g., Adorno, Frenkel-Brunswik, Levinson, and Sanford (1950), Barker (1979), Sniderman (1993)).2 Although “personality” may include multiple dimensions, this book focuses on a people’s tendency toward violence, which is the central element of North, Wallis, and Weingast (2009). Second, this book contends that a people’s violent attitude is a double-edged sword for the state. Although it is more costly for a state to manage a people who exhibit more violent 1 Some psychology studies have shown that the people in geographically and historically related countries often exhibit similar personality profiles (e.g., Nisbett and Cohen (1996), Allik and McCrae (2004), and Schmitt, Allik, McCrae, and Benet-Martínez (2007)). 2 In this book, “national character” is determined by a nation’s social-economic environment and geography (rather than genetics), and is hence a completely neutral term. This book intends to investigate the role of “culture” in history, and narrows it down to one important component of national culture, i.e., the typical personality of the people. 1 tendencies, a bellicose populace is much more effective at defending its country when facing foreign invasion. In the spirit of the “political Coase theorem”, which is elaborated in Chapter 7, this book contends that there is an “optimal” personality for a society that maximizes the welfare of its people. Moreover, the exact form of this optimal personality depends on the material fundamentals of the society. For example, the national character of one country can be either “tough” (brave, aggressive, bellicose) or “weak” (timid, submissive, un-militaristic). Both types of character can be optimal choices for countries in different economic, political and geographical circumstances. “Institutional economics” has marked a major development in the economics, political science, and history literature in the past few decades, a fact emphasized by the conferment of the Nobel Prize on five intellectual leaders in the field.3 A large number of studies show that “institutions” matter greatly to economic performance, and they are often determined by economic fundamentals.4 North (1991, p. 97) defines “institutions” as follows: “Institutions are the humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights). Throughout history, institutions have been devised by human beings to create order and reduce uncertainty in exchange.” According to this definition, this book clearly belongs to the field of “institutional economics.” It offers a detailed study of the formation of the archetypical Chinese personality and its evolution in response to the changing economic, political, and military environments in historical and contemporary China. Moreover, it applies economic theories to analyze institutional developments in Chinese history, such as the introduction of the rule of law and the ways that ancient dynasties manage the large country of China. The book studies the determinants of the Chinese personality in ancient times. China has been a large country in terms of its geographical size and population throughout most of its documented history. This phenomenon is fairly unique in world history. Other large countries such as Russia, the United States, Canada and Brazil attained their current geographical sizes only in the last 300 years. Continental Europe is similar to China in geographical size, but has almost always been divided into many small countries. 3 These leaders include Ronald Coase (in 1991), Robert Fogel (in 1993), Douglass North (in 1993), Elinor Ostrom (in 2009), and Oliver Williamson (in 2009). 4 For example, see North and Thomas (1976), Williamson (1985, 1996, 2000), North (1990), Weimer (1995, 1997), Easterly and Levine (1997), Gallup, Sachs, and Mellinger (1999), Huntington and Harrison (2000), Pomeranz (2000), Sokoloff and Engerman (2000), Acemoglu, Johnson, and Robinson (2001), Glaeser and Shleifer (2002), Rodrik, Subramanian and Trebbi (2004), Greif (2006), Guiso, Sapienza, and Zingales (2006), Clark (2007), Dixit (2007), Garfinkel and Skaperdas (2007, 2012), Treisman (2007), Berkowitz and Clay (2011), Acemoglu and Robinson (2012), Nunn and Puga (2012), Ginsburgh and Throsby (2014), and Iyigun (forthcoming). 2 What has influenced China’s longevity as a single large country? The historical literature provides an answer to this question. For example, Turchin (2009, p. 191, 194, 196) observes the following: “antagonistic interactions between nomadic pastoralists and settled agriculturalists result in an autocatalytic process, which pressures both nomadic and farming polities to scale up polity size, and thus military power… The greatest imperial confederations of nomads in world history (the Xiongnu, the Turks, and the Mongols) arose on the steppe side of the frontier. In other words, the exceptionalism of the East Asian imperiogenesis hotspot was mirrored in the exceptionalism of repeated gigantic imperial confederations in the steppes. Furthermore, there was a striking degree of synchrony between the rise of the steppe imperial confederations and Chinese empires – Xiongnu and Qin/Han, Turks and Sui/Tang, Mongols and Song… A successful raid can be devastating to a farming community. Not only does it lose a large part of the resources needed to survive until the next harvest but the nomads may also kill men of fighting age, and abduct women and children as slaves. Thus, raiding pressure from the steppes imposes a severe selective regime on farming communities…The only successful way of resisting nomad pressure is for several local communities to unite into a “meta-community”, with a larger defensive force to offset the nomads’ military advantage.” Chapters 2 and 3 of this book present economic analyses that complement the history literature in further understanding why China has stayed a single big country and how it could deter powerful horse warriors. China has been a large country throughout most of its documented history due to its unique geographical location. There are vast areas of land at its northern border, including Mongolia and some present-day Chinese provinces. These areas are not suitable for agricultural production, but are ideal places to raise domestic animals such as sheep and cows. The nomadic tribes of China’s neighboring countries to the north usually rode horses while raising their sheep and cows. In fact, even today, the Mongols like to call themselves “the race on horseback.” The economic theory of “learning by doing” (or “practice makes perfect”) means that a worker’s productivity in a certain task tends to increase as he performs the same task repeatedly. This idea is generalized at the macro level in economics. Arrow (1962) and Lucas (1993) emphasize that “learning by doing” is an important engine of economic growth. A nomadic tribe has the advantage over an agricultural community in combat because the action of combat is largely similar to the action of ordinary production for nomads. Even during times of peace, a nomad must ride his horse to raise cattle and fight with wolves and other fierce animals to protect it. Therefore, in ancient times, a nomad who survived into adulthood was usually and “naturally” a good soldier in combat. However, a peasant’s production has much less to do with the training to be a professional soldier, particularly in the cavalry. Nomadic tribes were historically much more war-like than agricultural communities. 3 What could an agricultural community do if its neighbor was a nomadic tribe? People in ancient China found a good answer to this question: form a large agricultural country. In contrast, Europe did not face such a grave threat
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